Long term effects of virus shutdown

ChiefGator

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This might be unpopular but I have been thinking (probably too much) about the longer term effects of our response to the virus. Both personally and for the local and national economy.

Some thoughts follow:

Personally I have lost a lot of my wealth on paper and probably will lose some of my income as well. This, for me, means pulling back on most spending that is not essential. The stress from daily updates is not really helping some of my medical issues.

In our area tourists are a large part of our economy in the season. I would suspect that some of them who don't own property will in the future stay home more and travel less. Some who own homes might have to sell them, others that might have bought them won't. Developments that previously seemed very good might be not so good or canceled. We have a resort under construction by an airline, it is already suspended and I suspect might be canceled.

In the larger picture consider the travel industry:

I believe strongly that air travel will be reduced for at least the near term (six months to a year) and probably longer. This will mean that some airlines will go bankrupt and others merged. It will also mean layoffs through the system as business is less. Direct employees as well as indirect ones will impact the economy negatively.

Hotels and restaurants will also be negatively affected. Some smaller ones won't survive even the current conditions, and many are closed with layoffs of their employees. This will resonate with other portions of the economy especially tax revenues.

I could go on but I wanted this post to get others opinions, so comment as you desire.

We could have a thread on what might have happened if we took other less impactful actions (that politics won't allow) and one for the potential impact of that 2T stimulus bill that somehow our servants can't get done.

Thanks
 

BMF

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I'm curious to see how this impacts the housing market. It's going to have a trickle effect. Several people - mostly in the lower end, blue collar market...which will lead to white collar impacts - will end up jobless and this will lead to foreclosures, and a slow down in the real estate market.

I live in DC, so I think (I hope) I'm mostly protected. I'm planning to move back to Florida within 12-24 months. I'm hoping if there's a dip I can sell here and make out when I move to Florida. We'll see. I could end up losing my ass.
 

FireFoley

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I'm curious to see how this impacts the housing market. It's going to have a trickle effect. Several people - mostly in the lower end, blue collar market...which will lead to white collar impacts - will end up jobless and this will lead to foreclosures, and a slow down in the real estate market.

I live in DC, so I think (I hope) I'm mostly protected. I'm planning to move back to Florida within 12-24 months. I'm hoping if there's a dip I can sell here and make out when I move to Florida. We'll see. I could end up losing my ass.

I am in the same boat in a way as I am casually looking for a place, but think prices are way too high in the areas I am looking. Fortunately I am not in a rush. And I never want to see people lose a home for the reasons that are going on now. 10-15 years ago was different b/c people were buying multiple homes at a time or they were clearly buying homes they could not afford. They then blamed the banks and lenders, etc. instead of blaming themselves. In this situation, the banks/lenders will be more accomodating in allowing some missed payments b/c job losses and layoffs were done by mother nature so to speak. But when things like this happen whether it be our fault or not, it often times forces people to take a look inwardly and many will adopt a policy that I have lived by forever, which is live beneath one's means. So you might find a property that you like. Or on the other hand, if many people say they are never going anywhere again, they might invest more than they should in a home thinking they are never leaving their house again, LOL. Could go either way.

Also mortgage rates have gone up quite a bit lately on a % basis. Nothing that would prohibit a qualified borrower, but might hurt the first time buyer's b/c they are stretched anyway b/c of home price increases. The mortgage rates have increased not b/c interest rates have increased very much, but b/c the secondary mortgage market is frozen and is not functioning properly. Companies that borrow money cheaply to invest in mortgages of all types are getting CRUSHED. Take a look at BXMT, NRZ, TWO, NLY, etc. etc. etc. All of them are down 50-80% in a matter of less than 2 weeks. That is the problem with the mnortgage market right now.
 
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Zambo

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I'm curious to see how this impacts the housing market. It's going to have a trickle effect. Several people - mostly in the lower end, blue collar market...which will lead to white collar impacts - will end up jobless and this will lead to foreclosures, and a slow down in the real estate market.

I live in DC, so I think (I hope) I'm mostly protected. I'm planning to move back to Florida within 12-24 months. I'm hoping if there's a dip I can sell here and make out when I move to Florida. We'll see. I could end up losing my ass.
The way to take advantage of any market is buy low and sell high. You can't take advantage of anything by selling your current home and buying a new one in the same market (timewise). In a down market people still need to live somewhere so they rent instead of buy. Increase in demand makes rent go up. So you rent out your current home and use the money to buy a new home when you think there is a good value to be had. There is no rush unless the market is skyrocketing back up, the rentals will still be in demand. After you're in your new home, wait until the market comes back in a few years and then when the renters move out sell the old place. My wife and I have done this several times over the years.
 

BMF

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I am in the same boat in a way as I am casually looking for a place, but think prices are way too high in the areas I am looking. Fortunately I am not in a rush. And I never want to see people lose a home for the reasons that are going on now. 10-15 years ago was different b/c people were buying multiple homes at a time or they were clearly buying homes they could not afford. They then blamed the banks and lenders, etc. instead of blaming themselves. In this situation, the banks/lenders will be more accomodating in allowing some missed payments b/c job losses and layoffs were done by mother nature so to speak. But when things like this happen whether it be our fault or not, it often times forces people to take a look inwardly and many will adopt a policy that I have lived by forever, which is live beneath one's means. So you might find a property that you like. Or on the other hand, if many people say they are never going anywhere again, they might invest more than they should in a home thinking they are never leaving their house again, LOL. Could go either way.

Also mortgage rates have gone up quite a bit lately on a % basis. Nothing that would prohibit a qualified borrower, but might hurt the first time buyer's b/c they are stretched anyway b/c of home price increases. The mortgage rates have increased not b/c interest rates have increased very much, but b/c the secondary mortgage market is frozen and is not functioning properly. Companies that borrow money cheaply to invest in mortgages of all types are getting CRUSHED. Take a look at BXMT, NRZ, TWO, NLY, etc. etc. etc. All of them are down 50-80% in a matter of less than 2 weeks. That is the problem with the mnortgage market right now.

I have a ton in AGNC and it CRASHED in - like you said - two weeks. It's down around 40+% after today's comeback.
 

BMF

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The way to take advantage of any market is buy low and sell high. You can't take advantage of anything by selling your current home and buying a new one in the same market (timewise). In a down market people still need to live somewhere so they rent instead of buy. Increase in demand makes rent go up. So you rent out your current home and use the money to buy a new home when you think there is a good value to be had. There is no rush unless the market is skyrocketing back up, the rentals will still be in demand. After you're in your new home, wait until the market comes back in a few years and then when the renters move out sell the old place. My wife and I have done this several times over the years.

Very good points. If I was moving and staying in the same market that's something I'd definitely consider. But since I'm moving several states away (Virginia/DC to Florida) I want to unload it...plus, like I said, the market here is OUT OF CONTROL (a house two doors down from me sold for $61K over asking w/ over 25 offers. There's literally no inventory in Arlington, VA. Amazon is buying up houses for their future employees. The house was bought by an investor who put a tenant in there at $3000/month (it doesn't make sense).

Anyhow, I agree w/ your perspective - but since we are leaving DC for good I don't want to deal w/ renting it.
 

Zambo

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Very good points. If I was moving and staying in the same market that's something I'd definitely consider. But since I'm moving several states away (Virginia/DC to Florida) I want to unload it...plus, like I said, the market here is OUT OF CONTROL (a house two doors down from me sold for $61K over asking w/ over 25 offers. There's literally no inventory in Arlington, VA. Amazon is buying up houses for their future employees. The house was bought by an investor who put a tenant in there at $3000/month (it doesn't make sense).

Anyhow, I agree w/ your perspective - but since we are leaving DC for good I don't want to deal w/ renting it.
Well if you can get bank for your house and you think the market is going down, then obviously rent until you think its close to the bottom. Its certainly good to move from an inflated area to an area where you can get more for your buck. Best of luck!
 

FireFoley

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I have a ton in AGNC and it CRASHED in - like you said - two weeks. It's down around 40+% after today's comeback.

Sorry to hear that but you are clearly aware of what is going on. I look at those Mortgage REITS and see those giant dividends but am not tempted b/c I have my own HUGE losers. Have you seen the MLP's? A complete nightmare that I wish I was not living. I think many of us are in a similar boat overall.
 

BMF

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Sorry to hear that but you are clearly aware of what is going on. I look at those Mortgage REITS and see those giant dividends but am not tempted b/c I have my own HUGE losers. Have you seen the MLP's? A complete nightmare that I wish I was not living. I think many of us are in a similar boat overall.

I've been in AGNC for years. I get almost $200/month in dividends. I actually added some more, since it dived so low. It's in my Roth, so I'm in no hurry to sell it. I've always hovered around even (on the stock price) w/ it, but it was actually up about 15-20% over the last 3 months (my dollar cost average) - and now it dropped (like you said) around 70%. UNBELIEVABLE!
 

FireFoley

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I've been in AGNC for years. I get almost $200/month in dividends. I actually added some more, since it dived so low. It's in my Roth, so I'm in no hurry to sell it. I've always hovered around even (on the stock price) w/ it, but it was actually up about 15-20% over the last 3 months (my dollar cost average) - and now it dropped (like you said) around 70%. UNBELIEVABLE!

Unfortunately it is believable. I was too damn dumb to pull the trigger on NRZ and TWO, and both went up 3 bux/share with good payouts. And now I am glad I was lucky. But it is believable. Just take a look at EPD, MPLX, KMI, ET, etc, etc. and so on and so on and so on. MLP's, aka the mortgage REITS of the energy sector. Always was told MLP's are basically toll roads for oil and gas and the actual price of the Commodity did not matter. Guess what? BullShyt!. Turns out in fact the commodity price does matter, LOL.
 

Detroitgator

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I am in the same boat in a way as I am casually looking for a place, but think prices are way too high in the areas I am looking. Fortunately I am not in a rush. And I never want to see people lose a home for the reasons that are going on now. 10-15 years ago was different b/c people were buying multiple homes at a time or they were clearly buying homes they could not afford. They then blamed the banks and lenders, etc. instead of blaming themselves. In this situation, the banks/lenders will be more accomodating in allowing some missed payments b/c job losses and layoffs were done by mother nature so to speak. But when things like this happen whether it be our fault or not, it often times forces people to take a look inwardly and many will adopt a policy that I have lived by forever, which is live beneath one's means. So you might find a property that you like. Or on the other hand, if many people say they are never going anywhere again, they might invest more than they should in a home thinking they are never leaving their house again, LOL. Could go either way.

Also mortgage rates have gone up quite a bit lately on a % basis. Nothing that would prohibit a qualified borrower, but might hurt the first time buyer's b/c they are stretched anyway b/c of home price increases. The mortgage rates have increased not b/c interest rates have increased very much, but b/c the secondary mortgage market is frozen and is not functioning properly. Companies that borrow money cheaply to invest in mortgages of all types are getting CRUSHED. Take a look at BXMT, NRZ, TWO, NLY, etc. etc. etc. All of them are down 50-80% in a matter of less than 2 weeks. That is the problem with the mnortgage market right now.
The Fed is going to completely own the mortgage sector, like student loans.
 

BMF

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I refinanced my 30 year mortgage from 3.25% to 2.75% yesterday - total cost is about $3100. I'm planning to move within 15 months or so, so I'm not saving a ton, but my mortgage is dropping more than $300/month. So the "missed" payment (in May) I plan to pay that towards the principal. Part of the $3100 is $1500 towards the VA funding fee (which they make you pay when you refinance a VA loan - although I have more than 50% equity).
 

FireFoley

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I've been in AGNC for years. I get almost $200/month in dividends. I actually added some more, since it dived so low. It's in my Roth, so I'm in no hurry to sell it. I've always hovered around even (on the stock price) w/ it, but it was actually up about 15-20% over the last 3 months (my dollar cost average) - and now it dropped (like you said) around 70%. UNBELIEVABLE!

@BMF, thought you might find this interesting. Hope it gets posted correctly.

Mortgage bankers warn Fed mortgage purchases unbalanced market, forcing margin calls
  • The Mortgage Bankers Association warned that the housing market could face a ” large-scale disruption,” due to actions by the Fed that were meant to help the mortgage market.
  • The Fed bought $183 billion of purchases last week of mortgage-backed securities, in an effort to drive down rates, and they did.
  • But the Fed’s actions, amid a volatile market environment, helped add further strains that resulted in blowing up a widespread hedge that mortgage bankers use to protect themselves against rate increases, and now some lenders are facing margin calls that are eroding their working capital and threaten their ability to operate
The Mortgage Bankers Association in a dire letter to regulators Sunday warned that the U.S. housing market is “in danger of large-scale disruption,” due to efforts by the Federal Reserve that were intended to help rescue the mortgage market.

At issue are the Fed’s unprecedented $183 billion of purchases last week of mortgage-backed securities. The purchases were meant to drive down rates, and they did.

But together with the storm that gripped financial markets from the coronavirus, they also effectively blew up a widespread hedge that mortgage bankers use to protect themselves against rate increases. The hedge pays them if the prevailing rate in the market is higher than the mortgage rate they locked in with the customer.

The system works well unless mortgage rates are highly volatile. It is generally considered to be a safe trade: the hedge simply protects the lender against higher rates until the mortgage closes. But compounding the problem, many customers couldn’t close on their loans because of quarantines, leaving the mortgage lenders with only the cost of the hedge and no off-setting loan.

The huge volatility in mortgage bonds created massive margin calls from the broker dealers eho wrote the hedgrd to their mortgage bankers.
Some of these mortgage bankers are now facing margin calls of tens of millions of dollars that could drive them out of business, according to Barry Habib, founder of MBS Highway, a leading industry advisor who was among the first to publicly sound the alarm bell last week.

Hardest hit are independent mortgage bankers who wrote about 55% of the $2.1 trillion mortgages created last year and can have higher leverage.

In its letter to regulators, the MBA said: “The dramatic price volatility in the market for agency mortgage-backed securities [MBS] over the past week is leading to broker-dealer margin calls on mortgage lenders’ hedge positions that are unsustainable for many such lenders.”

The letter went on to say, “Margin calls on mortgage lenders reached staggering and unprecedented levels by the end of the week. For a significant number of lenders, many of which are well-capitalized, these margin calls are eroding their working capital and threatening their ability to continue to operate.”

Some lenders, the letter said, may not be able to meet their margin calls in a day or two.

The Fed came into the mortgage market forcefully two weeks ago when rates began to rise because a large array of investors were selling mortgage securities to raise cash, in part, to offset big losses in the stock market. There was also fear that borrowers wouldn’t be able to pay.
n the week of March 16, the Fed bought $68 billion of mortgages. But the market still saw massive selling, prompting the Fed to come in with an additional $183 billion of purchases last week. The combined $250 billion in mortgage purchases by the Fed over two weeks was $84 billion more than the Fed had bought over any four-week period during the financial crisis in 2009.

Ironically, the MBA had urged the Fed to come in strongly to help the mortgage market. “We understand that when the Fed came into the market, they couldn’t come in surgically. They didn’t have a scalpel. They only have a sledgehammer,” MBA chief economist Micheal Frantantoni told CNBC.

The New York Fed appears to have adjusted its purchases in response to the industry outcry. It purchased $40 billion of mortgages Friday, $10 billion less than it planned to buy, and it plans to do another $40 billion Monday but could end up doing less.

“We are expecting the Fed to modulate their purchases,” Frantantoni said.

But Habib said the Fed needs to go further than just modulate.

“This is a collapse of the system,” Habib said. “It’s as simple as the Fed stops buying for a period of time.”
While CNBC has learned that the MBA has made its concerns known to the Fed and other regulators, the specific request in the MBA letter went to the Financial Industry Regulatory Authority and the Securities and Exchange Commission. The MBA asked for regulatory relief for the broker-dealers who provide the hedges. Regulators have recommended a best practices guideline to collect margin on any variation above $250,000.

The MBA asked FINRA and the SEC to issue guidance urging lenders not to escalate the margin calls to “destabilizing levels.”
 

BMF

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Sep 8, 2014
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@BMF, thought you might find this interesting. Hope it gets posted correctly.

Mortgage bankers warn Fed mortgage purchases unbalanced market, forcing margin calls
  • The Mortgage Bankers Association warned that the housing market could face a ” large-scale disruption,” due to actions by the Fed that were meant to help the mortgage market.
  • The Fed bought $183 billion of purchases last week of mortgage-backed securities, in an effort to drive down rates, and they did.
  • But the Fed’s actions, amid a volatile market environment, helped add further strains that resulted in blowing up a widespread hedge that mortgage bankers use to protect themselves against rate increases, and now some lenders are facing margin calls that are eroding their working capital and threaten their ability to operate
The Mortgage Bankers Association in a dire letter to regulators Sunday warned that the U.S. housing market is “in danger of large-scale disruption,” due to efforts by the Federal Reserve that were intended to help rescue the mortgage market.

At issue are the Fed’s unprecedented $183 billion of purchases last week of mortgage-backed securities. The purchases were meant to drive down rates, and they did.

But together with the storm that gripped financial markets from the coronavirus, they also effectively blew up a widespread hedge that mortgage bankers use to protect themselves against rate increases. The hedge pays them if the prevailing rate in the market is higher than the mortgage rate they locked in with the customer.

The system works well unless mortgage rates are highly volatile. It is generally considered to be a safe trade: the hedge simply protects the lender against higher rates until the mortgage closes. But compounding the problem, many customers couldn’t close on their loans because of quarantines, leaving the mortgage lenders with only the cost of the hedge and no off-setting loan.

The huge volatility in mortgage bonds created massive margin calls from the broker dealers eho wrote the hedgrd to their mortgage bankers.
Some of these mortgage bankers are now facing margin calls of tens of millions of dollars that could drive them out of business, according to Barry Habib, founder of MBS Highway, a leading industry advisor who was among the first to publicly sound the alarm bell last week.

Hardest hit are independent mortgage bankers who wrote about 55% of the $2.1 trillion mortgages created last year and can have higher leverage.

In its letter to regulators, the MBA said: “The dramatic price volatility in the market for agency mortgage-backed securities [MBS] over the past week is leading to broker-dealer margin calls on mortgage lenders’ hedge positions that are unsustainable for many such lenders.”

The letter went on to say, “Margin calls on mortgage lenders reached staggering and unprecedented levels by the end of the week. For a significant number of lenders, many of which are well-capitalized, these margin calls are eroding their working capital and threatening their ability to continue to operate.”

Some lenders, the letter said, may not be able to meet their margin calls in a day or two.

The Fed came into the mortgage market forcefully two weeks ago when rates began to rise because a large array of investors were selling mortgage securities to raise cash, in part, to offset big losses in the stock market. There was also fear that borrowers wouldn’t be able to pay.
n the week of March 16, the Fed bought $68 billion of mortgages. But the market still saw massive selling, prompting the Fed to come in with an additional $183 billion of purchases last week. The combined $250 billion in mortgage purchases by the Fed over two weeks was $84 billion more than the Fed had bought over any four-week period during the financial crisis in 2009.

Ironically, the MBA had urged the Fed to come in strongly to help the mortgage market. “We understand that when the Fed came into the market, they couldn’t come in surgically. They didn’t have a scalpel. They only have a sledgehammer,” MBA chief economist Micheal Frantantoni told CNBC.

The New York Fed appears to have adjusted its purchases in response to the industry outcry. It purchased $40 billion of mortgages Friday, $10 billion less than it planned to buy, and it plans to do another $40 billion Monday but could end up doing less.

“We are expecting the Fed to modulate their purchases,” Frantantoni said.

But Habib said the Fed needs to go further than just modulate.

“This is a collapse of the system,” Habib said. “It’s as simple as the Fed stops buying for a period of time.”
While CNBC has learned that the MBA has made its concerns known to the Fed and other regulators, the specific request in the MBA letter went to the Financial Industry Regulatory Authority and the Securities and Exchange Commission. The MBA asked for regulatory relief for the broker-dealers who provide the hedges. Regulators have recommended a best practices guideline to collect margin on any variation above $250,000.

The MBA asked FINRA and the SEC to issue guidance urging lenders not to escalate the margin calls to “destabilizing levels.”

FF, that doesn't make much sense to me. What is the "disruption"? What will become of this? How will impact the industry?
 

Detroitgator

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Lifetime Member
Jul 15, 2014
28,237
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@BMF, thought you might find this interesting. Hope it gets posted correctly.

Mortgage bankers warn Fed mortgage purchases unbalanced market, forcing margin calls
  • The Mortgage Bankers Association warned that the housing market could face a ” large-scale disruption,” due to actions by the Fed that were meant to help the mortgage market.
  • The Fed bought $183 billion of purchases last week of mortgage-backed securities, in an effort to drive down rates, and they did.
  • But the Fed’s actions, amid a volatile market environment, helped add further strains that resulted in blowing up a widespread hedge that mortgage bankers use to protect themselves against rate increases, and now some lenders are facing margin calls that are eroding their working capital and threaten their ability to operate
The Mortgage Bankers Association in a dire letter to regulators Sunday warned that the U.S. housing market is “in danger of large-scale disruption,” due to efforts by the Federal Reserve that were intended to help rescue the mortgage market.

At issue are the Fed’s unprecedented $183 billion of purchases last week of mortgage-backed securities. The purchases were meant to drive down rates, and they did.

But together with the storm that gripped financial markets from the coronavirus, they also effectively blew up a widespread hedge that mortgage bankers use to protect themselves against rate increases. The hedge pays them if the prevailing rate in the market is higher than the mortgage rate they locked in with the customer.

The system works well unless mortgage rates are highly volatile. It is generally considered to be a safe trade: the hedge simply protects the lender against higher rates until the mortgage closes. But compounding the problem, many customers couldn’t close on their loans because of quarantines, leaving the mortgage lenders with only the cost of the hedge and no off-setting loan.

The huge volatility in mortgage bonds created massive margin calls from the broker dealers eho wrote the hedgrd to their mortgage bankers.
Some of these mortgage bankers are now facing margin calls of tens of millions of dollars that could drive them out of business, according to Barry Habib, founder of MBS Highway, a leading industry advisor who was among the first to publicly sound the alarm bell last week.

Hardest hit are independent mortgage bankers who wrote about 55% of the $2.1 trillion mortgages created last year and can have higher leverage.

In its letter to regulators, the MBA said: “The dramatic price volatility in the market for agency mortgage-backed securities [MBS] over the past week is leading to broker-dealer margin calls on mortgage lenders’ hedge positions that are unsustainable for many such lenders.”

The letter went on to say, “Margin calls on mortgage lenders reached staggering and unprecedented levels by the end of the week. For a significant number of lenders, many of which are well-capitalized, these margin calls are eroding their working capital and threatening their ability to continue to operate.”

Some lenders, the letter said, may not be able to meet their margin calls in a day or two.

The Fed came into the mortgage market forcefully two weeks ago when rates began to rise because a large array of investors were selling mortgage securities to raise cash, in part, to offset big losses in the stock market. There was also fear that borrowers wouldn’t be able to pay.
n the week of March 16, the Fed bought $68 billion of mortgages. But the market still saw massive selling, prompting the Fed to come in with an additional $183 billion of purchases last week. The combined $250 billion in mortgage purchases by the Fed over two weeks was $84 billion more than the Fed had bought over any four-week period during the financial crisis in 2009.

Ironically, the MBA had urged the Fed to come in strongly to help the mortgage market. “We understand that when the Fed came into the market, they couldn’t come in surgically. They didn’t have a scalpel. They only have a sledgehammer,” MBA chief economist Micheal Frantantoni told CNBC.

The New York Fed appears to have adjusted its purchases in response to the industry outcry. It purchased $40 billion of mortgages Friday, $10 billion less than it planned to buy, and it plans to do another $40 billion Monday but could end up doing less.

“We are expecting the Fed to modulate their purchases,” Frantantoni said.

But Habib said the Fed needs to go further than just modulate.

“This is a collapse of the system,” Habib said. “It’s as simple as the Fed stops buying for a period of time.”
While CNBC has learned that the MBA has made its concerns known to the Fed and other regulators, the specific request in the MBA letter went to the Financial Industry Regulatory Authority and the Securities and Exchange Commission. The MBA asked for regulatory relief for the broker-dealers who provide the hedges. Regulators have recommended a best practices guideline to collect margin on any variation above $250,000.

The MBA asked FINRA and the SEC to issue guidance urging lenders not to escalate the margin calls to “destabilizing levels.”

TLDR... ;) but to sum up, as I've already said, much like student loans, the Fed will own this whole sector as well... book it.
 

FireFoley

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Nov 19, 2014
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@BMF, in all honesty, I did not totally understand it either and I think it would have been prudent of the author to explain exactly what it is that the mortgage bankers use as that "hedge" from the time they give out a mtg rate until the time the deal closes? do they short some type of instrument that will allow them to make money they would lose if rates go up during that time frame? I posted thinking that this clearly has something to do with the huge down moves in NLY, BXMT, AGNC, TWO,NRZ, STWD, et al. Perhaps @Concrete Helmet can give us some guidance on this hedging mechanism. My first thought was that the FED was buying the prime mortgages leaving nothing but the risky ones for these publically traded mortgage REITS. But that is not it. and why is it that these bankers are getting margin calls? If I find out anything I will post. But somewhere in all this is one of the reasons that these stocks are getting pounded like rented mules.
 

FireFoley

Senior Member
Lifetime Member
Nov 19, 2014
9,013
14,787
Mortgage Bankers Facing Wave of Margin Calls
The Fed's intervention in the bond market is threatening mortgage bankers' ability to operate, according to an industry group.

Recent intervention by the Federal Reserve is now triggering a wave of margin calls by broker-dealers who sold hedges to mortgage bankers, according to a letter the Mortgage Bankers Association (MBA) sent regulators.

The bond purchasing scheme by the Fed, coupled with the agency's other moves and the general impact on the economy from the novel coronavirus, has made mortgage rates volatile.

This month alone, the 10-year treasury, which influences long-term mortgage rates, hit an all-time low of around 45 basis points (that is, 0.45%) and also gotten as high as 1.2%, the highest it has been since early January.

When mortgage bankers originate loans, they often sell them to the secondary market to be packaged into mortgage-backed securities. But in a lot of cases, they might hold the loan for awhile.

When they do this, they often hedge, or short, the mortgage to protect against rate increases that would make the mortgage of less value. Now, mortgage bankers are facing margin calls from these broker-dealers that sold them these hedges.

"Margin calls on mortgage lenders reached staggering and unprecedented levels by the end of the week," the MBA said in its letter, according to CNBC. "For a significant number of lenders, many of which are well-capitalized, these margin calls are eroding their working capital and threatening their ability to continue to operate."

The MBA further asked the Securities and Exchange Commission that it direct securities firms to not let margin calls get to "destabilizing levels."

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BMF

Bad Mother....
Lifetime Member
Sep 8, 2014
25,399
59,220
@BMF, in all honesty, I did not totally understand it either and I think it would have been prudent of the author to explain exactly what it is that the mortgage bankers use as that "hedge" from the time they give out a mtg rate until the time the deal closes? do they short some type of instrument that will allow them to make money they would lose if rates go up during that time frame? I posted thinking that this clearly has something to do with the huge down moves in NLY, BXMT, AGNC, TWO,NRZ, STWD, et al. Perhaps @Concrete Helmet can give us some guidance on this hedging mechanism. My first thought was that the FED was buying the prime mortgages leaving nothing but the risky ones for these publically traded mortgage REITS. But that is not it. and why is it that these bankers are getting margin calls? If I find out anything I will post. But somewhere in all this is one of the reasons that these stocks are getting pounded like rented mules.

I've been saying for more than 5 years that mortgage rates are way too low. Anything under 5% is a gift....and now we're seeing 30 year mortgages under 3%. It's unreal. I would like to know what the hell the summary of that article would be! I'm also curious how long this will last. I'm hanging onto AGNC, I'm in no hurry to sell it. I have it my Roth and my non-retirement brokerage.
 

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